What Your “Good Job” Is Costing You

You’re smart. You went to the right schools and got good grades, and that’s paid off with a nice job with a decent salary, a healthy upside, and some decent perks. Let’s say you make $125,000 per year.

Now let’s say you quit that job and spend three years founding a technology startup. At first it goes slowly, and things seem desperate. Then you get a break; then you hit it big. At year 5, your startup is worth $3 Million and attracts the attention of a bigger firm. They acquire your company.

So, if you stay in your job, you make $625,000 guaranteed, but you’re turning down a potential shot at a $3 Million exit. So your job is costing you $2,375,000 over the next 5 years. Worth it?

Think I’m wrong? What are you building in equity for the shareholders of the firm where you work? If it wasn’t a good deal for those shareholders, would they want you there?

Think it’s too risky? Sure, a ridiculous number of entrepreneurial enterprises fail, but failure cannot be counted strictly as downside. There is recoverable value in failure.

Too often people cite general statistics about entrepreneurial failure that include all entrepreneurs everywhere and in every sector; these metrics are all but anecdotal in nature. Be realistic in evaluating your chances. Not being stupid helps (we already established you’re smart), and your position in social networks likely has more to do with success or failure than any other factor (read this book).

And please don’t counter that I’ve inaccurately accounted for the capital required to create a startup, how “impossible” it is to get funding, and how doomed you might be for whatever reason before you start: startup capital requirements are lower than ever before – you can get started for as little as $10-$50K with a seed of an idea and the right partner.

Or is it that you’re “too big to fail?” Has your dependence on the lifestyle that The Man has meted out to you eclipsed your willingness to pursue something more valuable? Family, relationships, cars, mortgage payments, kids, restaurants, travel – call them what you will, but these responsibilities often become excuses for inaction.

Getting started young with entrepreneurial activity is a great way to avoid this trap; young people really have nothing to lose, especially teenagers, and it’s easier than ever for a teen to start something today.

While it’s perfectly possible to nurture a side project and wait for it to show signs of life before “quitting your day job,” the real opportunity for success comes in becoming a part of a network of entrepreneurs who are willing to take calculated risks together and that requires a full time commitment. Otherwise, you’re making a calculated decision to expose yourself to a much smaller chance of success. Why?

For every day that you accept payment in exchange for doing your employer’s bidding instead of something you’d rather be doing, you become less likely to take the bold steps necessary to succeed on your own.

Let’s take a look at this. You make $125K base. But how much would it take to replace your income package?

First, health insurance. If you’re at a big corporation, you get it subsidized, so you might pay, say, $500/month at the top, since you’re part of a group; those luckier people have their group premiums paid (or mostly paid) by their employer. But in the individual market, you’re talking at *least* $1000/month to get coverage– and your employer doesn’t pay any of it. So now we’re up to $137K.

Then add things like 401K contributions (which push you to over $150K, if not more), and your other perks. Those are nice. But you also have more intangible things, like your employer paying to attend conferences where you might *meet* that “community of people taking risks together.” Are you really willing to spend three years cut off, until your idea makes it big?

And Dave, you haven’t addressed the other thing: if your idea does fail– not because of stupidity, but just bad timing, or any of a thousand other things– what then? Now you’re out of savings, you don’t have a job, you don’t have your big exit… not necessarily a good situation.

Brendan – you of course are right; I’m making no attempt to deal with a variety of “real world” considerations like partner relationships, financing costs, dealing with investors, and all the very real reasons that one could fail.

But these are all individual concerns.

I am more interested in the collective entrepreneurial community as an organism, and good communities have lots of people willing to make exactly the wager I propose.

What our entrepreneurial community needs, quite frankly, is more people who are willing to reject individual risks and concerns in favor of a calculated bet on the success of the collective organism.

If you make some effort to put yourself at the middle of the local entrepreneurial social network, odds of success are quite a bit higher than they would be otherwise and that alone should be incentive enough to give people with sufficient means to take a calculated risk to go after an unknown upside.

In the end, your network has more to do with chances of success than you do; this network trends towards success and will even moreso if more smart, motivated people participate in it.

I don’t think that it’s possible to make an EV argument for starting a startup; Even at a 25% chance of making a (rather large) $3,000,000 exit from your startup you have approximately the equivalent EV as the job+benefits package you give as the benchmark at the beginning of the article, plus much higher risk and equivalently higher chance of reward.

That said, I work in a just-post-startup company and continue to involve myself in startups. Why do I do it? Because I like the environment, the challenge, and the freedom of it. I’m willing to take a pay cut and a lower EV because I happen to be happy working in this environment, so I factor in the value of my happiness.

Your response to Brendan is much more convincing, arguing that one should factor in the social value creation aspect of entrepeneurship as well as the other factors.

So, that leaves us with a model that looks something like this:

(reasonable exit value * chance of success) + personal value of working in the startup environment + social value of entrepeneurship = your personal value of working in a startup

Thus, if you value working in a startup environment and/or think that it has a high social value, the value of the startup environment can exceed that of the job environment for you.

I think the difference that you and Brendan have is that you give a high value to working in a startup and to its social benefits, while he gives a lower value.

Bill – I should admit now that I’m running a bit of Socratic poker here. This is the argument I hoped to spark.

I believe an EV argument may actually be valid due to the social network effects I allude to. We all assume that the risk is “much higher,” but is it really?

Is the risk lowered by more smart people agreeing to participate in the fabric of the network? I think it is. In fact I think this is probably the only worthwhile differentiator between communities with strong entrepreneurial activity and those without it.

Therefore, I believe it’s an important social good to actively provoke people in high paying jobs who could contribute to the entrepreneurial fabric to consider entrepreneurship.

I am not concerned with their individual risk, only in the aggregate good for all entrepreneurs that would occur by adding more nodes and connections to the network.

Your assessment of the differences between my and Brendan’s point of view is probably accurate; I would love to find effective arguments for changing his mind, because I think it’s important for our region to change more minds like his.

I get the feeling this is really Dave being provocative to stir discussion about a point of passion. I do have some of the same issues with the original post that others have brought up, of course, but if there is any key statement Dave made in the comments that I think might be the MOST important thing here, it’s this:

“In the end, your network has more to do with chances of success than you do; this network trends towards success and will even moreso if more smart, motivated people participate in it.”

The problem seems to be that friend of a friend is an incompetent bureaucrat that admonishes you to not do things for yourself and to let them handle things. That view from the train that you talk about is a symptom of this, where the majority of Baltimore waits around for the government to do something about it.

Couple this with how the “smart” people behave. They are too busy keeping up with the Jones. Emerson said that “They measure their esteem of each other by what each has, and not by what each is.” Quitting the Man is too expensive for them. That $50k startup cost looks more like $200k to them because they need most of it to sustain their lifestyle.

There are plenty of resources after you quit the Man, but none that help you get to the point that you want to quit the Man. Paul Graham (paulgraham.com/siliconvalley.html) indicated that the secret to silicon valley was the getting people together that are willing to quit the Man part, not what you do afterward.

The required change in attitudes you are talking about only come about through the effects of pressure within social networks.

So we 1) need to replace the ‘friend of a friend’ that is an incompetent bureaucrat with one who is a credibly successful entrepreneur, 2) use those same entrepreneurs to taunt possession-obsessed, logic driven people into the fold by convincing them that they are missing out on some uncapped upside, whether real or imagined.

I am convinced that no set of “resources” will ever be sufficient to get people to quit the man. The only way to do it is with social pressure.

It may seem at first that this is a “catch 22,” but if we fully comprehend the nature of the network we are hacking, some smart manipulation of the nodes (adding the right ones strategically) can seed the behavior we are looking to see.

This post is designed to be one of many attempts to spark a specific, algorithmic manipulation of the network.

Dave, I agree with out about the community part, but disagree with how you want to go about it.

I see the path to entrepreneurship as an enlightenment/empowerment process rather than a pressure/taunting approach.

I see entrepreneurship as a high level need that requires the fulfillment of a number of lower level needs. Maslow describes this process in his hierarchy of needs.

You can expend resources all the resources you want, but if those resources does not address all of their lower level needs, they will not be able to quit the man.

I see the process like a death from a thousand cuts. Each cut can seem almost trivial taken by itself, but group them together and it becomes fatal. Each person is a little bit different in how they get cut from a circumstance.

I don’t think it’s easy to account for all of these levels, but it’s not impossible. Simply knowing that they exist makes it much easier to address all of them. I think these levels can be boiled down to a few key concepts. Paul Graham summarized what’s needed by using the term relentlessly resourceful.

Theoretically you can address everything through social networks, but this rarely happens in reality. I think resources are important because having a salable product is much more comforting than a vague notion of what you want. Information is also important because it’s hard to ask a question to your network if you don’t know enough to even ask it.

John, I hear what you’re saying but would suggest that I am going after something broader than I am letting on here.

The biggest factor in getting people to take the leap into entrepreneurship is seeing their peers do so successfully.

I am suggesting the adoption of any and all strategies to get more people to do that and be successful. There may be people who are on the fence and just need encouraged; for them, I wrote this post.

There may be people that need other kinds of resources – education, financing, mentoring. Those should be addressed too.

The kind of multiple exposure you’re talking about comes through social networks. But when I talk about social networks, I’m not talking about traditional “business networks” or “support networks.” I am talking about the social network as an organism and the effects that travel passively through them.

People are a lot more malleable than they imagine, and they almost certainly do not behave as rational individual actors. Read “Extraordinary Popular Delusions and the Madness of Crowds,” by Mackay and “Connected: The Surprising Power of Social Networks and How they Shape our Lives” by Christakis and Fowler.

These works taken together suggest that if you perceive entrepreneurship as a social phenomenon, it can be sparked via controlled manipulation of nodes within a network which in turn leads to a self-sustaining feedback loop, attracting more of the right nodes to the network. And this is all that Silicon Valley is.

And so it is hubris on Paul Graham’s part to suggest that this phenomenon could only happen there. If you understand the math behind the phenomenon and set out on a course to create it, it can be replicated.

I am suggesting that the Valley has become solipsistic enough not just to not know the math behind what drives it, but to no longer care. And so if we want to drive change elsewhere, we need to take a serious look at simulations and economic models that have a realistic shot of generating the kind of change we want to see.

All approaches that add entrepreneurial nodes to the network are valid and important. But the longer term questions are 1) what is the fewest number of entrepreneurial nodes that can be added to the network to transform the largest number of other nodes, 2) what specific nodes and/or positions need to be manipulated for the greatest influence (which is, incidentally, not likely to be the ‘influencers’), 3) how can this be done least expensively?

I believe economic simulation may provide answers to this, and based on what I have been able to find so far, no one has done this seriously yet. I am looking into creating some tools to answer these questions.